Earlier this week, Facebook made another pricey acquisition, buying WhatsApp for $19 billion. The mobile messaging service has attracted over 450 million active users by allowing them to send an unlimited number of messages via Wi-Fi for a very low cost – the first year is free and each subsequent year costs only $0.99. The founders pledge the acquisition won’t mean ads will be phased into service.
To close out the week, Armin Huska, chief digital officer, Mindshare Canada, is sharing his thoughts on the deal and what it means for the future of Facebook.
Huska: Founded by two former Yahoo! Engineers, WhatsApp has been built entirely on word of mouth with three guiding principles: “No Ads, No Games, No Gimmicks.” This differentiates it from rival services such as Line and WeChat, which rely on advertising or gaming and in-app purchases for revenue. Instead, WhatsApp charges users about $1 a year after the first year, which is free. When mobile customers can often pay that much to send less than ten text messages, its appeal isn’t hard to understand.
It is apparently profitable, because it has so few employees and saves on server costs by deleting messages once they have been sent. Like other messaging apps it also makes use of the simple interface with contacts on a phone so that users can very quickly connect with all their friends, rather than having to build up a social graph.
Facebook’s strategy is very different, it relies on monetizing user data through advertising. Facebook has said that it has no plans to change WhatsApp’s model, and that the company will remain independent. One of WhatsApp’s founders is also going to join Facebook’s board. Much of the coverage of the acquisition will focus on whether Facebook will stick to this promise. Instagram was ad free when it was acquired, though its founders hadn’t been so vocal about not running advertising.
There are other ways that Facebook could build on its new acquisition’s success to date other than ads. Its penetration is greatest in many markets Facebook has yet to conquer in the way it has places like the US, UK and Australia. The fact that it allows people to communicate via Wi-Fi means it has great appeal in developing markets where data charges can be expensive. Facebook should now be able to use that global popularity to continue to drive the growth of its core services.
Facebook also has much more server capacity than WhatsApp has had to date so it will be interesting to see whether the policy of deleting sent messages from its databases will continue, or whether Facebook will look to use that data to improve targeting on its ad-funded products. This will obviously be dependent on how it manages such a move. When Google centralized all of its privacy and data usage policies it got into hot water in the EU.
How Facebook decides to further monetize WhatsApp beyond its existing subscription model makes interesting speculation but is ultimately not the real point here. On mobile devices, consumer attention is more fragmented than ever. Attention is a zero sum game; every minute spent in Snapchat, LINE or WhatsApp is a minute not spent in Twitter, Facebook or Instagram.
As part of its new multi-app strategy (including Instagram & Paper) Facebook obviously decided it needed access to more of those minutes. Brands meanwhile need to focus on how they can create truly valuable experiences to earn the attention to win some of those minutes back.
